How solar energy storage could make Tesla much more than an automaker

How lucrative could the solar energy storage business be for Tesla? Almost as lucrative as selling cars.

That’s according to Morgan Stanley, which this week placed a figure—$2 billion—on how much it thinks Tesla could make in annual revenue from solar energy storage. That’s assuming that its “gigafactory”—a massive lithium-ion battery production facility, which is currently still in the planning stages—is up and running by the end of the decade.

To put that number into context, Tesla’s annual revenue last year, when it sold about 22,000 vehicles, was… $2.01 billion. Of course, this can be expected to be much higher by the time the gigafactory is completed, but the comparison still reinforces the idea that Tesla is much more than just simply an automaker. The factory, currently slated for completion in 2020, has reportedly signed up Japanese industrial giant Panasonic as a partner.

Earlier this year, Morgan Stanley received some stinging criticism when it released some fairly ebullient research on Tesla (calling it “arguably the most important auto company in the world). That helped lift the electric car maker’s share price just days before it raised $1.6 billion in fresh capital to help fund the gigafactory. The fundraising round was underwritten in part by none other than Morgan Stanley.

The central thrust of the bank’s thesis was (as I put it) that Tesla’s most disruptive product might not actually be its cars, but its batteries. Analysts, and not just those from Morgan Stanley, think that once Tesla’s gigafactory is producing to scale, those batteries could be used to power everything from drones to consumer electronics devices.

But aside from cars, the most plausible use case remains solar power storage, whereby a house could capture solar energy through a panel installed on its roof—perhaps even one made by Solar City, one of Musk’s other companies—and then store that energy in the basement using Tesla-made batteries.

Here’s an excerpt from Morgan Stanley’s latest note:

Given the relatively high cost of the power grid, we think that customers in parts of the US and Europe may seek to avoid utility grid fees by going “off-grid” through a combination of solar power and energy storage. We believe there is not sufficient appreciation of the magnitude of energy storage cost reduction that Tesla has already achieved, nor of the further cost reduction magnitude that Tesla might be able to achieve once the company has constructed its “Gigafactory,” targeted for completion later in the decade.

Morgan Stanley gets to the $2 billion number by forecasting that Tesla’s batteries could eventually store more than 10 gigawatt hours of energy per year. Which is a lot of power—enough to run the average home for 1,000 years—but still a tiny fraction of overall energy consumption in the US.